David Enrich

Among those bracing for potential losses on Detroit debt are European banks. A number of the continent's lenders have been holding the city's debt, in the form of retiree pensions, since before the onset of the global financial crisis.

Industry officials estimate that European banks are holding roughly $1 billion of Detroit's unsecured debt—a significant slice of the total of $11 billion of such outstanding debt that Detroit disclosed as part of Thursday's bankruptcy filing. At least some of the European banks have stashed...